General Topics

Are you ready for the Amazonians?

Published on January 25, 2018 in the Financial Post

Haider-Moranis Bulletin: If you think housing prices and rents are unaffordable now, wait until the Amazon code warriors land to fight you for housing or a seat on the subway

Amazon.com Inc. has turned the search for a home for its second headquarters (HQ2) into an episode of The Bachelorette, with cities across North America trying to woo the online retailer.

The Seattle-based tech giant has narrowed down the choice to 20 cities, with Toronto being the only Canadian location in the running.

While many in Toronto, including its mayor, are hoping to be the ideal suitor for Amazon HQ2, one must be mindful of the challenges such a union may pose.

Amazon announced in September last year that its second headquarters will employ 50,000 high-earners with an average salary of US$100,000. It will also require 8 million square feet (SFT) of office and commercial space.

A capacity-constrained city with a perennial shortage of affordable housing and limited transport capacity, Toronto may be courting trouble by pursuing thousands of additional highly-paid workers. If you think housing prices and rents are unaffordable now, wait until the Amazon code warriors land to fight you for housing or a seat on the subway.

The tech giants do command a much more favourable view in North America than they do in Europe. Still, their reception varies, especially in the cities where these firms are domiciled. Consider San Francisco, which is home to not one but many tech giants and ever mushrooming startups. The city attracts high-earning tech talent from across the globe to staff innovative labs and R&D departments.

These highly paid workers routinely outbid locals and other workers in housing and other markets. No longer can one ask for a conditional sale offer that is subject to financing because a 20-something whiz kid will readily pay cash to push other bidders aside.

We wonder whether Toronto’s residents, or those of whichever city ultimately wins Amazon’s heart, will face the same competition from Amazon employees as do the residents of Seattle? The answer lies in the relative affordability gap.

Amazon employees with an average income of US$100,000 will compete against Toronto residents whose individual median income in 2015 was just $30,089. It is quite likely that the bidding wars that high-earning tech workers have won hands down in other cities will end in their favour in the city chosen for Amazon HQ2.

While we are mindful of the challenges that Amazon HQ2 may pose for a capacity-constrained Toronto, we are also alive to the opportunities it will present. For starters, Toronto can use 50,000 high-paying jobs.

GIG ECONOMY

The emergence of the gig economy has had an adverse impact in the City of Toronto, where the employment growth has largely concentrated in the part-time category. Between 2006 and 2016, full-time jobs grew by a mere 8.7 per cent in Toronto, while the number of part-time jobs grew at four times that rate.

While being the largest employment hub in Canada, with an inventory of roughly 180 million square feet, an influx of 8 million square feet of first-rate office space will improve the overall quality of commercial real estate in Toronto. It could also be a boon for office construction and a significant source of new property tax revenue for the city.

But those hoping the city itself might make money should seriously consider the fate of cities lucky enough to host the Olympics, which more often than not end up costing cities billions more than they budgeted for.

Toronto may still pursue Amazon HQ2, but it should do so with the full knowledge of its strengths and vulnerabilities. At the very least, it should create contingency plans to address the resulting infrastructure deficit (not just public transit) and housing affordability issues before it throws open its doors for Amazon.

Murtaza Haider is an associate professor at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at info@hmbulletin.com.